Global economic themes

Non govt credit expansion pretty much stone cold dead in the US and Europe

Rising oil energy prices subduing global aggregate demand

US federal deficit just about enough to muddle through with modest GDP growth

Rest of world public deficits also insufficient to close output gaps, including China which has calmed down considerably

Zero rate policies/QE/etc. in the US, Japan, and Europe doing their thing to keep aggregate demand down and inflation low as monetary authorities continue to get that causation backwards

All good for stocks and shareholders, not good for most people trying to work for a living

Europe still in slow motion train wreck mode, with psi bond tax risk keeping investors at bay and ECB waiting for things to get bad enough before intervening

So still looking to me like a case of

‘Because we fear becoming the next Greece, we continue to turn ourselves into the next Japan’

The only way out at this point is a private sector credit expansion, which, in the US, traditionally comes from housing, but doesn’t seem to be happening this time. Past cycles have seen it come from the sub prime expansion phase, the .com/y2k boom, the S&L expansion phase, and the emerging market lending boom.

But this time we’re being more careful of ‘bubbles’ (just like Japan has done for the last two decades). So I don’t see much hope there.

Still watching for the euro bond tax idea to surface, which I see as the immediate possibility of systemic risk, but no real sign yet.

This ignores the excessive levels of debt that have already being accrued and that need to be paid off. Until those existing debts are either eliminated or paid down the economy will be sluggish. As for lack of credit growth that again needs credit worthy borrowers. Most individuals are already loaded up to the max with debt, so the only prospects are new entrants to the market but these people are currently struggling to find work, and then asset prices are still far too expensive for these to buy.